Online Shareholders’ Meetings Lower Costs, but Also Interaction

By Steven Davidoff Solomon

May 31, 2016

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CreditCreditHarry Campbell

Not one shareholder showed up to Intel’s shareholders’ meeting last week. In person, at least.

Instead, Intel’s annual meeting was entirely virtual. There was no in-person gathering site, the questions were submitted in advance, and management and the board made all of their presentations online.

Virtual meetings are a growing phenomenon, but although technologically feasible, they are a bad idea.

In 2015, 90 companies used this method with Broadridge, a big provider of virtual meeting technology. In addition to Intel, GoPro, SeaWorld Entertainment, PayPal, Fitbit and Yelp have all held virtual shareholders’ meetings in the last year.

Companies are adopting this technology for a number of reasons. There are the obvious cost savings, because they do not have to pay for a location and serve food (however meager, although some companies are known for their shareholders’ meeting spreads). And having a virtual meeting allows people to “attend” who would not otherwise want to make the trip. The company can also better track shareholder attendance and participation.

Perhaps more important, a virtual shareholders’ meeting allows the company to manage troublesome shareholders and their often uncomfortable questions. Some of this may provide a welcome limit on the time monopolized by corporate gadflies such as John Chevedden, James McRitchie and William Steiner, who were responsible for a staggering 70 percent of shareholder proposals sponsored by individuals among Fortune 250 companies in 2014, according to a study by the Manhattan Institute. Not only do these individuals like to propose company action, they make a habit of haranguing directors at corporate meetings.

And who could forget Evelyn Y. Davis? She made a living by selling subscriptions to her newsletter, and companies would buy these subscriptions to appease her and avoid her lengthy scoldings of management at annual meeting time.

Virtual meetings are also convenient when it comes to general protesters. No doubt SeaWorld was happy to avoid a possible protest by animal rights groups over its keeping of killer whales when it held its virtual shareholders’ meeting last year.

It’s hard to blame a company for wanting to stop these practices, though I must admit the quirky shareholders make life more interesting.

But there are other things a company gains by eliminating in-person shareholders’ meetings — and that is limiting tough questions. Broadridge specifically states this advantage in its marketing materials. “Issuers can privately view and manage shareholder questions without broadcasting to other attendees.”

This means a company can pre-empt shareholder activists before they even arrive on the scene. It was no coincidence that the CSX Corporation held its 2008 meeting at a remote rail yard in New Orleans, the same year it was the focus of a shareholder activist putting up a proxy fight. In previous years, it had held those meetings at the luxurious Greenbrier resort in West Virginia, which the railroad owned at the time. A virtual meeting eliminates the potential for a public relations disaster.

True to form, the 49-minute Intel shareholders’ meeting was something of a nonevent. The company had three shareholder proposals on the agenda, including resolutions to allow action by written consent put forth by Mr. Chevedden. I missed the live event but listened to a playback. The meeting was run by Intel’s chairman, Andy D. Bryant, who appeared to be reading from a script. Intel did give five minutes each to present the shareholder proposals and a whole 12 minutes to questions and answers, but the questions were clearly handpicked. Management’s response was fine, though also seemed preprogrammed.

This all makes it clear to me that the virtual meeting raises troubling trends, a reason it is opposed by leading shareholder groups like the Council of Institutional Investors and the California Public Employees’ Retirement System.

The in-person shareholders’ meeting is the sole opportunity all shareholders have to meet and talk with management. Indeed, at many small and midsize companies, the conversation continues as shareholders talk with management before and after the meeting. They also have the opportunity to ask questions that put management on the spot. These questions can directly influence what management thinks and says.

And in difficult situations, the repeated resistance of shareholders can make a difference. Robert Nardelli’s conduct at the 2006 meeting of Home Depot shareholders represented a nadir for shareholder participation, and one that eventually led to Mr. Nardelli’s departure. Now, shareholders are expected to participate and be allowed to do so.

Corporate law has always endorsed this idea of give and take. In a famous decision, a Delaware court ruled that an annual meeting had to be held even if the shareholders could act by written consent to make sure that the actions passed. “The annual meeting may in some instances be a bother to management, or even, though rarely, a strain, but in all events it provides a certain discipline and an occasion for interaction and participation of a kind,” the court said.

To be sure, these meetings can be a pain, but even the haranguing can be a good thing, forcing management to confront its entrenched biases. The gadflies may be persistent, but they also may be right.

In an attempt to compromise on virtual meetings, the California State Teachers’ Retirement System in 2012 issued a best-practices guide for online meetings that recommended posting all of the questions asked to ensure that management received them. But one can question whether this fully fixes the problem when there is no in-person interaction.

Hybrid meetings that combine in-person and virtual elements seem less of a problem. These allow people to attend their meetings while also having a virtual component.

Management should also recognize that in-person shareholders’ meetings can be fun and a way for the company to build good will with its shareholders. Think about the extravaganza that is the Berkshire Hathaway meeting. Days of talking and showing off the company’s products, including copious amounts of treats from Dairy Queen, a Berkshire Hathaway subsidiary. The Walt Disney Company’s meeting is also known for highlighting the company’s latest movie or ride. Even children can ask questions; one recent interaction led Disney’s chief executive, Robert A. Iger, to give a private tour of Pixar to a child. Some companies are local legends where the entire town will gather. It is at these meetings that connections are made between the company and its shareholders.

It’s here where perhaps the subtlest objection comes to virtual meetings. By forcing everything onto the web, we lose the personal interaction. Everyone logs in and watches a preprogrammed set of questions and answers. And then everyone goes away. Management’s worldview is reaffirmed in the 10 or so minutes it allows for questioning, and there is no engagement except with those investors who own a portion of shares large enough to personally meet with management. It’s a modern world that is frightening in its disengagement.

While companies have experimented with online meetings as far back as 2001, Intel was the first to allow online voting at a virtualmeeting in 2009. At the time, the inspector of elections for the meeting praised it as a model for keeping “those mostly obnoxious proponents out of one’s hair.” But Intel reversed its practice after shareholder complaints, going to a hybrid meeting. (Procter & Gamble also backtracked after shareholder complaints.) This year, Intel resurrected the virtual meeting, for unknown reasons.

Let’s hope that Intel and these other companies reconsider next year. This is a chance for each of these companies to bond with shareholders, not put them in a digital box.

Correction:May 31, 2016

An earlier version of this column misspelled the surname of one of the shareholders known for their questioning during corporate meetings. He is James McRitchie, not MacRitchie.

Correction:June 3, 2016

The Deal Professor column on Wednesday, about the virtues of in-person annual meetings, referred incorrectly to requests for corporate action proposed by three vocal shareholders: John Chevedden, James McRitchie and William Steiner. The three were responsible for 70 percent of shareholder proposals sponsored by individuals among Fortune 250 companies in 2014 — not 70 percent of all shareholder proposals.

Correction:June 23, 2016

An article on the DealBook page on June 1 about the growing phenomenon of virtual shareholders’ meetings erroneously attributed a distinction to Intel. While it was the first company to permit online voting at a shareholders’ meeting, in 2009, it was not the first to hold a virtual meeting.

Steven Davidoff Solomon is a professor of law at the University of California, Berkeley. His columns can be found at nytimes.com/dealbook. Follow @stevendavidoff on Twitter.

A version of this article appears in print on , Section B, Page 5 of the New York edition with the headline: Online Shareholders’ Meetings Reduce Costs, and Interaction. Order Reprints | Today’s Paper | Subscribe